Sept. 4 (Bloomberg) -- U.S. stocks tumbled, sending the Standard & Poor's 500 Index to the longest stretch of losses since January, after rising jobless claims heightened concern the economic slump is worsening and a decline in oil pushed energy producers lower.

Caterpillar Inc., Boeing Co. and United Technologies Corp. retreated as much as 5.6 percent after higher unemployment spurred concern about tomorrow's monthly jobs report. Exxon Mobil Corp. dragged energy shares in the S&P 500 to the lowest level since February. Banks and brokerages fell 4.7 percent after bond investor Bill Gross warned of a ``financial tsunami.''

The S&P 500 dropped for a fourth day, decreasing 38.15 points, or 3 percent, to 1,236.83, sinking the most since June 6. The Dow Jones Industrial Average lost 344.65, or 3 percent, to 11,188.23. The Nasdaq Composite Index slipped 74.69, or 3.2 percent, to 2,259.04. Eleven stocks fell for each that rose on the New York Stock Exchange.

``If you look at the data we have on the U.S. and global economy, things are only getting worse and that leads me to believe that demand is going to slow down and slow down pretty quickly,'' Diane Garnick, a New York-based investment strategist at Invesco Ltd., which manages more than $500 billion, told Bloomberg Radio.

Stock-index futures started falling after the Labor Department said at 8:30 a.m. New York time that the number of Americans collecting unemployment benefits reached a five-year high. The selling accelerated as oil declined an hour and a half later. The majority of the drop occurred after the S&P 500 slipped below 1,261.16, a one-month intraday low that traders said represented a level of support for the market.

$500 Billion in Losses

The S&P 500 has lost 16 percent in 2008 as subprime-related losses at global banks climbed above $500 billion and the U.S. economy teetered on the brink of a recession. This week's losses pared the rebound in the benchmark stock index to 1.8 percent from an almost three-year low set on July 15.

Caterpillar had the steepest drop since October 2006, losing 5.6 percent to $63.94. Boeing retreated 4.6 percent to $63.03, and United Technologies lost 3.8 percent to $64.88. The Labor Department said the number of Americans staying on jobless rolls rose to 3.435 million, the highest since November 2003, in the week ended Aug. 23. First-time claims for unemployment benefits increased by 15,000 to 444,000 last week.

The Labor Department's monthly payrolls report will be released tomorrow. Employers probably cut 75,000 jobs in August, according to the median estimate in a Bloomberg News survey.

Boeing also fell after its largest union rejected a contract offer, giving the world's largest planemaker 48 hours to revise it and avert a strike that may further delay the 787 Dreamliner.

`Market Softening'

Terex Corp. lost 20 percent to $38.02 for the steepest drop since 2002. The world's third-largest maker of construction equipment said profit this year will be less than forecast on ``continued market softening'' in the U.S. and Europe.

Energy and raw-material producers in the S&P 500 fell more than 2.1 percent as oil, gold and copper slumped. The decline drove the S&P 500 Materials Index to complete a 20 percent bear- market drop from its May 16 record.

Freeport-McMoRan Copper & Gold Inc. lost 6.8 percent to $74.93, the lowest price since August 2007. The largest publicly traded copper producer slumped for the fifth straight day, the longest streak of declines since February 2007. Exxon fell 2.4 percent to $76.14. Chevron Corp. lost 3.5 percent to $81.22.

Oil is now 27 percent below its July record of $147.27 a barrel.

`A Big Price'

``Given that the whole world is slowing down in terms of economic growth, that's not the environment that would make demand sufficiently high to push oil to a big price,'' billionaire investor Wilbur Ross said during a Bloomberg Television interview in New York.

Legg Mason Inc. led financial shares lower with a 10 percent decline to $42.60 as Credit Suisse cut its shares to ``underperform.'' The company with stock funds managed by Bill Miller will likely report lower-than-estimated earnings as investors withdraw their money, the analysts said.

The S&P 500 Financials Index retreated 4.7 percent, the most among 10 industries. American Express Co., American International Group Inc. and Bank of America Corp. fell more than 5 percent.

Lehman Brothers Holdings Inc. cut its 2009 profit estimate for American Express, the largest U.S. credit-card company by purchases, because of rising defaults.

`Financial Tsunami'

The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' according to Gross. Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm's Web site today.

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' he said. ``If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

The S&P 500 briefly pared its retreat after the Institute for Supply Management's non-manufacturing index, which captures almost 90 percent of the economy, rose to 50.6 in August. Economists projected 49.5, which would have marked the third consecutive month of contraction.

Ciena Corp., which counts AT&T Inc. among its customers, tumbled the most since August 2001, losing 25 percent to $13.09. Telephone and cable-television companies are delaying orders due to ``their guarded approach to capital expenditures given the uncertain macroeconomic environment,'' Ciena said.

Eighth Straight Loss

Hovnanian Enterprises Inc. had the biggest drop since October 1998, retreating 17 percent to $6.40. New Jersey's biggest homebuilder reported its eighth consecutive quarterly loss after nine years of gains, as buyers found it more difficult to secure financing.

TJX Cos., the owner of the T.J. Maxx and Marshalls chains, led retailers in the S&P 500 to a 3.1 percent loss after reporting August sales at stores open at least a year below analysts' estimates. TJX shares dropped 7.4 percent to $34.07.

Limited Brands Inc. fell 6.2 percent, the most since February, to $20.70. The owner of the Victoria's Secret lingerie chain said same-store sales fell 7 percent. Abercrombie & Fitch Co. slumped 6.8 percent to $50.99 after the clothing retailer for teenagers posted an 11 percent slump in August sales.

``It's going to be a while before people regain confidence in the economy and the market,'' said John Carey, a Boston-based money manager at Pioneer Investment Management, which oversees about $300 billion. ``The latest retail sales and jobless claims numbers and earnings reports don't give people the sense that we're about to turn the corner.''

The S&P 500 has lost 3.6 percent this week. The benchmark index for American equities is valued at 24.9 times profits over the last 12 months after climbing to a five-year high of 26.2 in August. The last time the average multiple rose above 25 times earnings, the S&P 500 fell 38 percent.

To contact the reporter on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net.

Last Updated: September 4, 2008 16:40 EDT